The Health of Social Security Unchanged

by kristine on August 9, 2014

medicare costsAccording to the 2014 Trustee’s report released in late July, not much has changed on the Social Security funding front. The assets for Social Security Old Age and Survivor Insurance (OASI) are expected to last until 2033. This is the same as last year’s report.

In the report to Congress, the Trustees said that the combined trust fund reserves are still growing and are expected to continue growing through 2019. At that time, the cost of benefits will be greater than the revenue coming in from payroll taxes and interest earned on the assets.

If nothing is done, Social Security is expected to run out of funds in 2033. That doesn’t mean that benefits won’t be paid out any longer, but they could be reduced. At that time, the income coming in is projected to cover just 77 percent of the benefits payable.

The news for Medicare was better. In the 2013 report, funds for Medicare were expected to run out in 2024; in the 2014 report, funds are expected to last until 2030.

While Social Security will definitely need to be reformed, it’s not going broke as many people would have you believe. Some of the changes we might see in the future to improve the health of Social Security include:

Raising the income cap: In 2014, the maximum amount of income that you will pay Social Security tax on is $117,000. One proposal is that people who earn over $250,000 should not have an income cap (while people earning less than that would continue to be capped at $117,000).

Increasing the full retirement age (FRA): People who were born between 1945-1956 currently qualify for full retirement benefits at age 66. People born after 1956 must wait longer to collect their full benefit. The full retirement age increases by two months for every year you were born after 1956, up to an FRA of 67 for people born in 1962 and later. The FRA could go up even more in the future.

Reducing or eliminating the COLA. Social Security benefits have received an average increase of 2.8% to help with rising costs. There have been many proposals to change how the COLA is calculated by people who believe the increase is too high. One suggestion which received great criticism is using the chained CPI, which would reduce the amount of increase each year substantially. This proposal has received the most controversy of all the proposals so far.

Reducing benefits for high income earners (otherwise known as “means testing”): There are several proposals to cut benefits for people who are considered high earners. Some propose that only those in the top quartile should be cut, other proposals say people in the top 50 percent of income earners should receive reduced benefits. Since this would include many Congress members, I’m not sure how likely this is to pass, but it has been proposed several times.

Taxing benefits for high income earners: Along the same lines, another proposal is to increase the tax that people with other income pay on their Social Security benefits. Currently, you only pay taxes on your Social Security benefits if you have combined income of $25,000 or higher ($32,000 for married couples). This income limit could be reduced, or the amount of benefits taxed could go up.

Reducing benefit amounts: This is probably the least likely to happen. The outrage and backlash from a decrease in benefits would be severe, so I expect this option would not take place unless Social Security was in dire straits and other actions were not successful in saving Social Security.

One consequence of the reports that Social Security is going broke is that many people are taking benefits as soon as they are eligible. This may or may not be the best strategy, but fear that Social Security will go broke or that benefits will not be paid at some later date cause people to make irrational decisions, including taking benefits early.

While I believe that some changes will need to be made to make Social Security stronger, I don’t believe that it will go broke. There are many filing strategies available, so you should learn as much as you can about Social Security before you retire to make sure you are getting the maximum benefit you are entitled to.

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A reader recently asked if she could collect Social Security benefits based on her ex-spouse’s earnings history.  She had been married to him for nine years and seven months.

Unfortunately, the answer was not what she wanted to hear.  In order to be able to collect spousal benefits based on an ex-spouse’s earnings record, you must have been married for 10 years or longer.  Even one day short of 10 years will disqualify you for divorced spouse benefits.


In addition to being married for 10 years, you must meet the following requirements to collect divorced spousal benefits:

  • You must be unmarried at the time you apply for divorced spouse benefits,
  • You must be age 62 or older,
  • The benefit that you are entitled to receive based on your own work must be less than the benefit you will receive based on your ex-spouse’s work history, and
  • You must be entitled to Social Security retirement or disability benefits (i.e., you must have earned enough credits on your own work history)

There are a couple of other rules you will need to keep in mind regarding divorced spouse benefits.  First, you must be divorced for at least two years before you can collect benefits based on an ex-spouse’s earnings record.  Second, you can not be remarried and collect benefits on an ex-spouse’s earnings record.  However, if your marriage ends (due to death or divorce), you can then go back and collect on an ex-spouse’s earnings if you were married to that person for at least 10 years.

Also, if you are eligible for Social Security retirement benefits based on your own work history, then Social Security will award you the highest benefit you qualify for, whether it’s your own benefit or the spousal benefit.  Keep in mind that the spousal benefit is generally half of the benefit your ex-spouse will collect, so unless he/she had much higher earnings than your own (or you did not work for many years while raising a family), your benefit will most likely be higher than half of your ex-spouse’s benefit.

If you are at full retirement age, you have the choice of collecting either your own benefit or the spousal benefit, even if your benefit would be higher.  Why would you elect the lower spousal benefit?  By electing to take the spousal benefit instead of your own, you allow your own benefit to continue accruing credits, which will result in a higher benefit at a later date.  This can be a good strategy to increase your lifetime Social Security benefits.

For more spousal and divorced spouse strategies, please read Social Security’s Gift to Married Couples: The Spousal Benefit.

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Social Security Announces 25 New Compassionate Allowances Conditions

January 21, 2014

Last week the Social Security Administration announced twenty five new Compassionate Allowances conditions, including a dozen cancers and disorders that affect the digestive, neurological, immune and multiple body systems.  Included in the list of new conditions is prostate cancer, which will allow patients to receive life-saving treatment quicker. Read more at www.socialsecurity.gov/news.htm.

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Social Security Overpays Billions of Dollars in Benefits

November 1, 2013

As a Social Security blogger I typically search for news stories on the topic several times a week.  Imagine my surprise when the top stories this morning are about Social Security overpaying benefits, sometimes tens of thousands of dollars! ‘Critical failures’ lead to Social Security overpayments – CNN  Wed, 30 Oct 2013 11:33:06 GMT Long after […]

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Social Security Increase for 2014 to be 1.5 Percent

October 21, 2013

Update 10/30/13:  It’s official.  The SSA just announced that the benefit increase for 2014 will be 1.5%.  You can see the press release here. Many Seniors and other Social Security beneficiaries may not know it yet, but the expected Social Security increase for 2014 is 1.5 percent. The Announcement was scheduled for October 16, but […]

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The Government Shutdown Won’t Affect Your Social Security Benefits, But the Debt Ceiling Might

October 13, 2013

Social Security Benefits Will Continue to be Paid The good news is that Social Security retirement, disability and other benefits are continuing to be paid during the government shut down. The bad news is that some services are not available during the shutdown, the annual COLA announcement has been delayed, and if the debt ceiling […]

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Q&A: Can I Collect Social Security Before Retirement Age?

July 8, 2013

Q:  I lost my wife 3 years ago, she was 62. I am 55 and am not able to work anymore.  Can I draw her Social Security now, or am I to young? A:  Unfortunately, I have seen this (or similar) questions much too often lately.  Whether it’s due to the loss of a spouse, […]

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Q&A: IRAs and Social Security

June 17, 2013

Q:  I’ve heard that if you earn too much while collecting Social Security that you can be penalized.  What happens if I take money out of my IRA or I sell some investments?  Will I be penalized then too? A:  You are correct in that people who are receiving Social Security retirement benefits before their […]

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Q&A: Do My Children Qualify for Benefits?

June 12, 2013

Q:  My husband will reach full retirement age in October of this year and would like to collect Social Security retirement benefits, even though he plans on continuing to work.  We have two sons, age 13 and 16.  Will they also be able to collect benefits? A:  Yes, dependent children qualify for Social Security benefits […]

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When’s the Best Time to Apply for Social Security

April 27, 2013

One of the biggest questions you will face as you get closer to retirement is when to start collecting your Social Security retirement benefits.  The decision is much more complicated – and important – than you may think. Not only will this decision affect how much income you will receive during retirement, it affects how […]

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